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LID Associates v. Dolan

Case Date: 08/30/2001
Court: 1st District Appellate
Docket No: 1-00-0162 Rel

1-00-0162                                                                                                                                                                                                FOURTH DIVISION
                                                                                                                                                             AUGUST 30, 2001

 

LID ASSOCIATES; STANLEY BRESLER; 2707-09 PETERSON BUILDING
PARTNERSHIP; JANE E. BENSON; EDWARD F. BRENNAN, JR.;
GERSHOM R. COHN REVOCABLE TRUST; MILTON DILLER AS TRUSTEE
OF THE MILTON DILLER REVOCABLE TRUST; LARRY ENSSLIN;
JACK M. FAZIO; SYLVIA FEDERMAN AND RUTH F. SILVERSTONE AS
CO-EXECUTORS OF THE ESTATE OF HYMAN L. FEDERMAN; STUART H.
GLICKEN; ELLEN B. HENRIKSON; HI-CHICAGO TRUST; ALAN HOLLEB;
GORDON HOLLEB; PAUL D. HOLLEB; INVESTMENT RESEARCH
ASSOCIATES LTD.; JOEL A. KAPLAN, MD; CAROLYN J. KOREIN;
SANDOR KOREIN; JOEL A. KUNIN; L & S INVESTMENTS; MADHIC;
RICHARD E. MARCUS; BARBARA MOELIS; MRL ASSOCIATES; ROBERT B.
PILDES, MD; JAMES V. PROESEL; HERBERT N. ROSEN, DDS;
HOWARD ROSS; ROSLYN SALTSBERG; IRVING AND HILDA SOLOMON;
JOE A. WALTERS; JOANNE WOITESHEK REVOCABLE TRUST; GILBERT
BLECHMAN MARITAL TRUST B AS SUCCESSOR TO GILBERT BLECHMAN
REVOCABLE TRUST; DANIEL M. PIERCE; ALBERT A. ROBIN; BEA
RITCH TRUST; THE HOLDING CO.; AARDVARK TRUST; KORVISION
INVESTORS PARTNERSHIP; SUFFOLK INVESTORS PARTNERSHIP; GOOD
NEW BOYS; HAMPSHIRE LIMITED PARTNERSHIP; KORVESTORS
LIMITED PARTNERSHIP; PARK LIMITED PARTNERSHIP; SOUTH
LIMITED PARTNERSHIP; SYLVESTORS LIMITED PARTNERSHIP, LAFITE
TRUST; RUDOLPH P. REGEZ; MARTIN S. KATZ; NORMAN K. JACOBSON;
REX CARR; HAROLD M. DANZIG; EVERETT AVENUE ASSOCIATES;
ROBERT E. GOLDBERG; L.I. CABLE VENTURE; L.I.C. II VENTURE;
ANTHONY FLAKUS; BRUCE H. JOHNSON; JAMES B. LEAHY; CLAIB LEE
COOK, JR.; JAMM ASSOCIATES; ASSOCIATED CAPITAL CORPORATION;
URBAN COMMUNICATIONS; S-C PARTNERSHIP; IRIS TRUST; LEONARD
SCHILLER; PHILIP J. SCHILLER; PRAHA TRUST; KROMERIZ TRUST;
GOTTWALDOV TRUST; SATURNIA TRUST; ANNA TRUST; HYMAN TRUST;
ALBERT MORRIS TRUST; LUBA TRUST; JERUSALEM TRUST; TEL AVIV
TRUST; ISRAEL TRUST; RHOANN TRUST; MARTHE TRUST; MAREL
TRUST; CARRIE TRUST; TIMOTHY TRUST; LYNNE TRUST; EILEEN
TRUST AND KEVIN TRUST individually and derivately on
behalf of CABLEVISION OF CHICAGO, CABLEVISION OF ILLINOIS,
CHICAGO CABLEVISION INVESTMENTS, AND CABLEVISION
HEADQUARTERS INVESTMENTS,

          Plaintiffs-Appellees and Cross-Appellants,

                         v.

CHARLES F. DOLAN and CABLEVISION SYSTEMS SERVICES
CORPORATION,

          Defendants-Appellants and Cross-Appellees.

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)		 Appeal from the
Circuit Court of
Cook County.

































Honorable
Lee Preston,
Judge Presiding.


PRESIDING JUSTICE HARTMAN delivered the opinion of the court:

Plaintiffs, limited partner investors in Cablevision of Chicago(Partnership), brought an action individually and derivatively on behalf of thePartnership against defendants, general partners Charles F. Dolan and CablevisionSystems Services Corporation (CSSC), for breach of fiduciary duty involving threefinancing transactions. Plaintiffs claim the transactions unfairly benefittedthe general partners, to the detriment of the limited partners.(1) A jury foundthe issues for plaintiffs.

The issues presented on appeal include whether the circuit court erred (1)in allowing certain evidence as to plaintiffs' theory of breach of fiduciaryduty; (2) in refusing to submit a defendants' statute of limitations instruction;(3) in refusing a separate verdict form to determine the liability of eachdefendant; and (4) whether individual verdicts for plaintiffs' claims should nothave been submitted to the jury.

The issues presented on cross-appeal include whether the circuit courterred (1) by allowing Partnership indemnification of defendants' attorneys' feesand costs; (2) by denying forfeiture damages; (3) by not submitting the issue ofpunitive damages to the jury; and (4) by submitting a certain statute oflimitations jury instruction.

Dolan, a cable industry pioneer, established the Partnership in 1979 forthe purpose of bringing cable television to the Chicago area after a successfulcable television venture in Long Island, New York. Bank loans to then-novelcable television companies were considered risky because the companies had fewassets to pledge as collateral, needed long-term loans and had cash flowproblems. Banks granting such loans in 1979 demanded restrictive loan covenantsthat required the borrowing cable company to maintain certain financialperformance levels or face default.

Dolan formed three Illinois limited partnerships to raise capital for thePartnership. Prior to investing in the three limited partnerships, eachplaintiff received a private offering memorandum, which included a copy of thePartnership Agreement and explained that there were substantial risks ininvesting in start-up cable companies in the early 1980s. Dolan testified thatthe Partnership Agreements for the Partnership and three limited partnershipswere identical, except for monetary terms. Each plaintiff was required tocertify that he or she had a substantial net worth, was sophisticated in businessand financial affairs and had received the offering memorandum containing a copyof the Partnership Agreement.

Section 8.1(a) of the Partnership Agreement gave Dolan, as a generalpartner, authority to manage the partnership and enter into transactions infurtherance of the Partnership's business. Section 8.2(d) specificallyauthorized Dolan, as managing general partner, "to borrow or lend money upon anyterms and conditions, including the subordination of such loans; *** guaranteeindebtedness or obligations of others; provided, however, that [Dolan] determinein good faith that any such transaction is in furtherance of a Partnershippurpose." Further, the Partnership Agreement in section 8.2(h) allowed Dolan,as managing general partner, "to engage in any kind of activity and to performand carry out contracts of any kind necessary to, or in connection with, orincidental to the accomplishment of the purposes of the Partnership, as may belawfully carried on or performed by a limited partnership under the laws of theState of Illinois ***."

The Partnership Agreement also specifically contemplated potentialconflicts of interest in authorizing transactions with Dolan's affiliatecompanies.(2)

During 1979, Dolan created the first limited partnership, Cablevision ofIllinois (COI), using proceeds totaling $16,978,000 from the sale of COIpartnership units to provide the initial financing for the Partnership.

On December 17, 1980, Dolan and William Bell, chief financial officer ofthe Partnership, successfully negotiated a loan with a group of banks led byContinental Illinois National Bank and Trust Company of Chicago (collectivelyContinental Bank) for $42 million at a prime plus 1